Commentary and
Analysis

Income Tax Threshold

The Government appears to have experienced some
difficulty in concluding its Budget for the current year and missed
several target dates going back to January 2002. The Budget when measured
against expectations would be a great disappointment as it offered none of
the wishes or concerns of stakeholders. It seems unbelievable that the
Government would leave the threshold of the personal allowance untouched
for five consecutive years. The current allowance granted was set in 1997
and is therefore worth approximately G$23,000 which is within the 20% tax
rate.

It is hard to believe that the Government’s failure
to respond to the popular and universal request as insensitivity. It seems
more reasonable to assume that the IMF would have insisted on this
position given the state of the economy. This is the price we pay for
abandoning our economic sovereignty to an institution where poverty and
its alleviation seem to be more concepts than reality. It is also the
price we pay for pursuing a policy of debt relief rather than growth and
development.

So entrenched are we in the IMF Programme that we
have no exit strategy and in that case we simply have to submit to all
their conditionalities.

Over the past several years, the country’s economy
has deteriorated substantially and the projected growth rate of 2% is
inadequate to take us out of our current state of poverty. Our per capita
GDP has stagnated against a dream of doubling it within 10 years which
would have required a compounded growth rate of 8% per annum. Over the
past several years, the Government has developed a warm relationship with
the private sector and appears not to have any regular dialogue with the
labour movement. While the slowing of the inflation rate protects the
workers’ income and savings, even modest increases in income to
compensate for inflation can take the income into the taxable bracket.

Failure to address the threshold therefore is likely
to be a huge disappointment not only to employees, but to employers as
well since they share the burden of meeting workers’ expectations.

Debt

There is much that has been written about the
country’s debt problem and much of the credit for the substantial debt
relief from which the country has benefited is claimed by the current
Government. Indeed, the President claimed that when the PPP/C came to
power the debt service ratio was some 90% of export earnings. The reality
is slightly different, largely because of the way the numbers were being
computed. The IMF insists that public estimates be drawn up as though all
scheduled debt services would be met. In practice however, Guyana had for
several years not been meeting its obligations to creditors and the Hoyte
Administration had initiated action to reschedule maturities of principal
and interest payments falling due between January 1, 1989 and December 31,
1994.

In 1989 the country had total debts of US$1.9Bn, of
which a significant portion represented arrears. As a result of the
approaches to the international community and the buy-back of certain
debts, by October 1992 the country had cleared most of its arrears and its
debt service ratio would had been reduced to 33%.

Many Guyanese may not be aware as well that for several years prior to 1992, Guyana had
not been paying its indebtedness either to the international financial
institutions or to commercial creditors. Accordingly, it had not been
possible for the Government, particularly during the years 1985 to 1990 to
borrow any money or to contract commercial credit. Questions like where
did the $2.1Bn go must be considered extremely ill informed since a
substantial portion represented interest and penalties for non-payment
over several years.

Since 1992, Guyana has made remarkable strides in
obtaining debt write-off but the cost has been significant since it
required a commitment on the part of the Government to meet its
re-scheduled obligations. During the period since 1992, the country has
borrowed approximately US$600Mn of external debt while its domestic debt
has increased from $18.1Bn to $49.7Bn!

In the process, we have paid out interest of G$39.3Bn
on our total external debt and G$40.0Bn on our internal debt for the
period 1993-2001. Debt management will remain a critical issue for our
policy-makers for years to come. Accordingly, we must follow basic
principles that ensure that we utilise borrowed funds on projects and
programmes which at a very minimum produce financial and/or economic
returns to enable the country to service those debts.

Businesses in Distress

In his 1999 Budget Speech, Minister Kowlessar
announced his Government’s intention to assist businesses in distress.
Despite systemic business failures affecting rice, lumber, manufacturing,
gold and even the commercial sector, the Government has shown a marked
reluctance to intervene, even when problems could spill over and threaten
the financial system – the very foundation of an economy.

Even as the Minister was preparing to go to
Parliament to present his 2002 Budget, he would have noticed that another
three leading businesses had been taken to Court because of their
inability to meet their obligations to their creditors. About 1,300
borrowers in the rice industry owe approximately $15Bn to the commercial
banks of which approximately 1,200 account for about 10% of the
indebtedness. Despite the integrated nature of the industry, the
Government only assisted the small operators, leaving the large players to
make their own case with their bankers. The Minister needs to revisit his
stated commitment to distressed businesses and recognize that given the
systemic difficulties which several industries are experiencing, only
Government intervention and the co-operation of the bankers can stave off
further business failures and costly shocks to the economy.

The Investment Code

The Government on numerous occasions had committed
itself to a legally enforceable Investment Code and the Minister proudly
announced in his Budget Speech that his Government had tabled such a code
in Parliament. The Code tabled however was not a legally enforceable
document and excluded many of the strong provisions of the Draft Code
which had been the subject of widespread consultations. Some of the
provisions which were taken out included steps to lend transparency and
certainty to the issue of tax concessions which is now purely a matter of
political discretion; a more streamlined Go-Invest and clearer rules for
investment. The Government appears to have lost a number of points as well
as credibility as a result of its failure to honour a commitment made to
the international community. In order to restore credibility with donors
as well as investors, the Government needs to revisit the Code.

Corruption

The Minister spoke about the need for transparency
and efficiency of the economy. In this connection, Parliament has already
passed laws to strengthen the Office of the Auditor General giving it not
only greater resources, but also legislating for its stronger
independence.Despite taking
some steps to deal with corruption, the Government is still perceived to
be soft on the issue. Corruption however, is not limited to the Public
Sector and while many consider that corruption persists in matters of
tender procedures, procurement and tax revenue transactions, some action
needs to be taken to deal with corruption in and by the private sector. In
this connection, some new forms of audit arrangements, legislation to
encourage whistle-blowing and stronger penalties to deal with wrong-doers
need to be considered.

Budget Process

Over the past several years, Parliament has been
called upon to approve substantial sums of money which had already been
expended. While this may be partly due to emergency or failings in the
budgeting system, the extent has been so pervasive that it seems to cast
doubt on the entire Parliamentary approval system. New forms of
constitutional arrangements may be necessary so that a built-in Government
majority cannot automatically approve sums which did not fall within the
rules. The graph below shows the extent of sums for which Parliament gave
subsequent approval:

Total Supplementary Funds Approved
(TSFA)

The Role of Parliament

Guyana
operates a Parliamentary democracy, but the records show that Parliament
has been found wanting. During the entire nine months following the March
2001 elections, Parliament met on a total of 19 occasions with half of
those dealing with the 2001 Budget. Guyanese invested greatly in
constitutional reform and looked to their Parliament to chart a course for
national development. Every Guyanese must feel that he/she has been
betrayed by the Parliament. It is time that this situation be rectified
since there is no acceptable alternative to Parliament. Our
Parliamentarians must get to work.